ECONOMY-ZIMBABWE: Foreign Exchange Shortage, Remittance Boom

By IPS Correspondents Reprint | | Print |

Wilson Johwa

BULAWAYO, Zimbabwe, Nov 5 2003 (IPS) - It could pass for an ordinary flea market selling cheap goods imported from the Far East. Look closely, however, and you will find a thriving black market for foreign currencies, where a growing legion of Zimbabweans go to cash the remittances they receive from relatives living abroad.

It could pass for an ordinary flea market selling cheap watches, toys, footwear and clothes imported from the Far East. What strikes the casual observer first is the sharp contrast between the makeshift shelters of black polythene, and the white robes worn by members of the Christian Apostolic sect who dominate the business in this Bulawayo market.

Look closely, however, and you will find a thriving black market for selected foreign currencies. The goods on sale are merely for show – an attempt to fool the police, whose intermittent raids have so far failed to close the bazaar.

Its aggressive traders are so atuned to currency fluctuations that the place has been nick-named the “World Bank”.

The moniker is certainly no misnomer, as this is where much of the foreign currency sent to dependents of the growing legion of Zimbabweans living abroad is cashed.

In a country where the value of one US dollar is officially pegged at 800 Zimbabwe dollars – while the parallel rate is about 6,000 Zimbabwe dollars – it is easy to see why most trade takes place on the black market. Preferred currencies include the US dollar, British pound, South African rand – and Botswana pula.

Political repression, joblessness and the debilitating effects of triple-digit inflation have forced many Zimbabweans to seek a better life outside the country. An estimated one million nationals are currently scattered around the world, with South Africa, Britain, the US and Botswana being the most favoured destinations.

The government estimates that Zimbabweans who are living overseas send home about one million US dollars a day. But, given the unfavourable rates at which foreign exchange is traded officially, hardly any of this money arrives through conventional banking channels.

Even people who have foreign currency denominated accounts face difficulties. In most banks, a withdrawal can only be made after showing proof of a planned foreign trip.

It is not surprising then that most remittances to Zimbabwe come via couriers and friends.

Lynn, a 24-year-old whose father works in Botswana, actually makes the arduous 12-hour trip to Kasane in Botswana to collect money from him – rather than have it come through the bank. If changed at the so-called “World Bank”, these funds are enough to sustain her family of four for a month.

Other enterprising Zimbabweans have set up web sites through which expatriates can send money or groceries home.

One of these sites is chirundu.com, which says “We all know that people back home are facing difficult times at the moment, so bring a little bit of luxury back into their lives, send them a hamper filled with imported and some favourite Zimbo goods.”

The aptly-named sadza.com enables people who live abroad to pay for medicines, construction materials and groceries from several Zimbabwean retail outlets. Once the money is deposited, sadza.com promises that the goods will be available for collection in Zimbabwe within 24 hours. (Sadza, a porridge made from maize flour and water, is a staple of the Zimbabwean diet.)

In addition, the company also pledges to source items that are in short supply. “We are also working with independent dealers that provide rice, beans, sugar, cooking oil, flour and other items in great demand,” it says. Payment is through credit card, electronic cheque, or direct deposit.

Economist John Robertson says that while money from abroad is helping dependents in Zimbabwe survive hard times, it is also causing major distortions to the country’s economy.

Remittances, he says, are pushing up local consumption without boosting production – a phenomenon that fuels inflation.

“If you get 100 pounds a month you wouldn’t have to work, and this is not altogether good,” explains Robertson. In a country where, according to the United Nations Development Programme, 36 percent of the population lives below the poverty line of one US dollar a day – this trend has spawned a new class of “loafers”.

Take the case of a former clerk, in his late forties, who only wished to be identified as Sithole. Cash from his two children – one in the US and another in Britain – has allowed him to quit work and even join an exclusive golf club.

However, Eddie Cross, economic adviser to the opposition Movement for Democratic Change, says remittances from Zimbabweans abroad are keeping the country afloat. He believes the funds may also be meeting about half the financial needs of private companies that have survived the economic downturn.

Zimbabwe’s government does not have as much sympathy for the private sector as Cross does. It claims that exporting companies are failing to repatriate their earnings, and that this is undermining the economy.

Last week, it set up a nine-member task force to address the problem of foreign currency shortages that have prevented the import of fuel, drugs and many other commodities and services.

Economists have criticised this move, predicting that the taskforce will come up with a new set of regulations which will plunge the country into further difficulties.

What is needed, they say, is a realistic exchange rate that will encourage exporters to use the official market.

Cross says the solution would be to float the Zimbabwe dollar. This move is, however, allegedly being resisted by government officials who are making a killing out of the discrepancy between official and black market exchange rates. These individuals are suspected of buying currency allocations at the official rate, then selling the funds at “World Bank” rates – and pocketing the profits.